Why do people see their home as an investment?

Tassotti

I often see many people refer to their home as an 'investment'.

I cannot understand this. You buy a house (asset), you take out a mortgage (liability) and try and pay it off for the rest of your lives.

How is this an investment?

The only way I can see this as an investment is if you eventually manage to pay off the mortgage, then die and hand it down to your kids, they may benefit.

If you don't pay off the mortgage, you are handing on a liability.

Unless you are an investor in property (ie own many properties) how is buying a house an investment?

Comments please

lynzpower

Cos Kirsty & Phil told me to

Debt_Free_Chick

Tassotti wrote:

I often see many people refer to their home as an 'investment'.

I cannot understand this. You buy a house (asset), you take out a mortgage (liability) and try and pay it off for the rest of your lives.

How is this an investment?

Because one option is to trade down at some point and take the equity out as a cash sum.

And some people will not pay a mortgage for "the rest of your lives". They generally pay it off over 25 years - or sooner, by overpaying.

The only way I can see this as an investment is if you eventually manage to pay off the mortgage, then die and hand it down to your kids, they may benefit.

If you don't pay off the mortgage, you are handing on a liability.

Most of us will have mortgage protection insurance and this pays off the mortgage when the borrower dies. So the property is handed on, mortgage-free.

Doozergirl

My father-in-law trusted that his pensions would see him comfortable when he retired. They performed appallingly. Some were worth less than he'd paid in; he was absolutely mortified.

On the other hand, as a couple they chose the house they bought fantastically and that has helped them no end. As a result, they won't have to worry about money anymore.

That's why people see it as an investment, though putting all your eggs in one basket mighn't pay off. But we all know that...

seabiscuit_2

probably because after 25 years most people will have paid off their mortgages (unless you are moving very frequently which most people dont do)

those who are renting will still be paying rent out until they die, and then will have nothing to show for all those years whilst the home owners will have the house which when they retire, they can live in without the worry of mortgage / rent payments out of the small pension they are likely to have

seletar

Hi, seabiscuit is dead right.My retirement comes up in three years and I have
just managed to pay off my mortgage.So I will be able to live on half the
money that I presently earn as I will have no mortgage payments.Also I will
still have a little time to save some money out of my present earnings.

funky-footprints

we see our home as a long term investment along with the other properties we own, as probably in the next 9 - 15 years we will be mortage free. Im quite looking forward to being in my 40's.

Tassotti

My point is, though, that an investment earns you money.

How does owning a home actually earn you money (unless you downsize, and how many people actually do that?)

Doozergirl

I've taken this from an online dictionary:

"An investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price."

A house fits that bill exactly for me. Even if you don't sell, once your repayments have finished, you've earned extra money in your pocket every month and your children an inheritance.

Tassotti

So basically, until you've actually paid off the mortgage, or die, then buying a house is not an investment.

According to your description, an investment makes you money. Even after paying off your mortgage, you might save money, but your house is not making you money.

Your kids might benefit from it ( I am sure mine are hoping I kick ther bucket as they will be loaded)

A House is a LIABILITY not an investment

taxi97w

When you've paid off your home- you have to cough up for the repairs refurbishments etc.
You never finish paying for your house.
I think your definition is correct OP, it's not an investment if you're living in it.